The Microsoft executive in charge of the Xbox 360 sold US$3 million (AU$3.66 million) more in stock than originally disclosed during the weeks leading up to the July announcement that the flawed video game console was going to cost the company more than US$1 billion in repairs.
According to a filing published Tuesday by the U.S. Securities and Exchange Commission, Robbie Bach, president of Microsoft's entertainment and devices division, started selling shares May 1, not May 3 as reported earlier. The additional 100,000 shares -- one-third of the total he sold in several transactions between May 1 and May 30 -- accounted for US$3.02 million of the new total of US$9.17 million.
Microsoft explained the difference between what Bach actually sold in May and what was reported to the SEC as "an administrative error."
Bach's transactions were the subject of speculation because of the timing of their disclosure. Just over a week before the SEC posted details of Bach's stock sales, he had spelled out problems with the Xbox 360 to financial analysts and reporters. "Over the past couple of months, the number of repairs for the Xbox 360 console have been unacceptable to us," he said during a telephone conference call then. Bach announced an immediate two-year extension of the Xbox 360's warranty and said that Microsoft would take a charge of more than US$1 billion to pay for the anticipated repairs.
In the July call, Bach acknowledged that Microsoft had been aware of the problem for several months. "This set of issues wasn't visible at all for the first year and more," he said. "But the past couple of months, we've seen a significant increase in call volume, repair volume and attention from people."
"An administrative error led to the filing not being done within the required two-day period," said Microsoft spokesman Eric Hollreiser in an e-mail Wednesday. Under SEC rules, insider transactions must be submitted within two days of the sale. However, late filings are due only within 45 days of the end of the company's fiscal year. Microsoft's fiscal year ended June 30.
"Bach filed a Form 5," said Ben Silverman, director of research at InsiderScore, an insider trading intelligence service, talking about the form used to report late transactions. "Typically, the transactions disclosed on Form 5s include shares being gifted to a charity and acquisition of stock through an employee stock ownership plan," Silverman added. "It's less typical to see a buy or sale disclosed on such a form, but it does happen. Usually, we'll simply see a Form 4 filed late with a footnote stating that it's a late filing."
Microsoft's Hollreiser declined to give a timeline of when the company noticed its oversight, saying only, "We are in full compliance now."
In any case, Microsoft's share price was little affected by the news of the Xbox 360's failure rate and the associated US$1 billion in expenses. The day after the announcement, the price closed down just 2 cents. As of July 12, it had recovered to US$30.07, up 8 cents since the July 5 warranty change, though in the intervening month, it has dropped to Wednesday's close of US$28.27. Bach, meanwhile, sold his shares in May at an average price of US$30.57.